Excerpt:.....employed by each of those firms and their manufacturing activites. but the tribunal has referred to the fact that the appellant itself is also a manufacturing concern making good profits and that no evidence to the contrary has been placed by the management. under those circumstances, the tribunal, in our view, was perfectly justified in holding after having due regard to the profits earned by the company, that its financial condition was quite good. as the appellants have substantially failed in their contentions, they are directed to pay costs of the respondents in this appeal......settlement dated october 10,1964.2. in the questions noted above and which relate to a claim for dearness allowance, it will be seen that there is a reference to two settlements, one dated october 10, 1964 and the other dated april 6, 1966 and it is necessary to refer to those agreements in so far as they relate to payment of dearness allowance as they provide the background for the present reference. the first settlement was arrived at between the parties matters. item 2 of the settlement related to wage scales. the material portion of the settlement in this regard was as follows:wage scales (1) the management shall give to permanent and temporary workmen an ad hoc increase in their wages with retrospective effect from april 1, 1964 in the following proportion upto june 30, 1964 after.....

Judgment:

G.A. Vaidialingam, J.

1. This appeal, by special leave, by the appellant company, is directed against the award, dated June 26, 1969 of the industrial Tribunal, Maharashtra, Bombay in Reference (IT) No. 287 of 1967.

On an joint application made by the appellant and the respondents, the Deputy Commissioner of Labour (Admn.), Bombay, by virtue of the delegation of powers made in his favour by the Government of Bombay, referred, by his order dated September 2, 1967, the following questions for adjudication:

All permanent workmen shall be paid clearness allowance as under with retrospective effect from January 1966.Upto and including Bombay As provided in settlement dated Consumer Price. Index 600 April 6, 1966. points.When the Bombay Consumer 45% rise on the wages arrived at Price Index is in the range of 601/610. after working at 500 index figure as per Clause 2 of thesettlement dated October 10, 1964.Variation for every ten 5% rise or fall on the wages arrivedpoints thereafter. at after working at 500 index figure as per Clause 2 of the settlement dated October 10,1964.

2. In the questions noted above and which relate to a claim for dearness allowance, it will be seen that there is a reference to two settlements, one dated October 10, 1964 and the other dated April 6, 1966 and it is necessary to refer to those agreements in so far as they relate to payment of dearness allowance as they provide the background for the present reference. The first settlement was arrived at between the parties matters. Item 2 of the settlement related to wage scales. The material portion of the settlement in this regard was as follows:

Wage scales

(1) The management shall give to permanent and temporary workmen an ad hoc increase in their wages with retrospective effect from April 1, 1964 in the following proportion upto June 30, 1964 after which new wage scales as mentioned in (B) below shall be introduced from July 1, 1964.

(i) between index figures 10 paise for permanent workers;480 and above but less than 489. and 10 paise for temporary workers.(ii) between index figures 10 paise for permanent workers;490 and above but less than and 10 paise for temporary 499. workers.(iii) at index figure 500. 12 paise for permanent workers;and 10 paise for temporary workers.(iv) between index fig- 3% rise on the wages arrived after figures 501 and 520. working at 500 index figure for permanent workers.

4. It was further stated that in view of the consolidated wages the demand for clearness allowance was withdrawn.

5. From the above it will be seen that provision has been made for increase in the wages till the index figure reaches 540. But, it is also seen that the parties agreed to decide dearness allowance payable by mutual discussions when the index figure goes beyond 541.

6. The parties entered into further settlement on April 6, 1966. This settlement was stated to be in addition to the settlement dated October 10, 1964 and the latter settlement was to remain in force, with revised terms, if any, as mentioned in the settlement of April 6, 1966.

7. Demand No. 1 in the second settlement deals with dearness allowance and, in so far as it is material, the settlement was as follows, in this regard:

Workmen will be given increased rates of the dearness allowance as follows:

(a) Between the cost of 14% rise on the wages arrived atliving index figure 541 AND 560 after working at 500 for permanent workers.(b) Between the cost of 18% -do-living index figure 561 and 580.(c) Between the cost of 22% -do-living index figure 581 and 600.Since the cost of living index has gone above 600, it is agreed that the matter of dearness allowance shall be referred immediately for decision by joint application under Section 10(2) of the Industrial Disputes Act, 1947. Pending decision on this joint application, it is agreed as an interim arrangement that the workmen will be given increased rates of dearness allowance as follows:

(d) Between the cost of 24% rise on the wages arrived atliving index figure. 611 and 500 index figure for all workers.610.(e) Between the cost of 26% -do-living index figure 611 and 620. The clause No. 2 of the settlement dated October 10, 1964, sign ed before the Conciliation Officer, Bombay, remains unaffected.

8. Here, again, it will be seen that increased rates of dearness allowance was agreed to be given at the rates mentioned in the settlement till the cost of living index figure goes upto 600. But, as even at the time of settlement the cost of living index had gone above 600 the parties agreed that the matter of dearness allowance was to be referred immediately for adjudication under the Industrial Disputes Act by a joint application. But, as adjudication, on such an application, will necessarily take time, the parties further agreed that as an interim arrangement the workmen were to be given increased rates of dearness allowance at the rates mentioned in Clauses (d) and (e) above for the cost of living index figures ranging between 601 and 620. It was in pursuance of this settlement that the parties made a joint application for referring the question of dearness allowance for adjudication under the Industrial Disputes Act and that is how the matter came up before the 'Industrial Tribunal.

9. Before the Tribunal the case of the Union was briefly as follows The appellant originally started as a private limited company and the subscribed capital was Rs. 15,000/-. It is engaged in producing pharmaceutical chemicals and drugs on behalf of various foreign companies of international repute. The business of the company expanded very rapidly and its paid up capital was ultimately increased to 7 lakh rupees. The reserves and assets of the company have also grown proportionately over the years and it has been paying large amounts by way of remuneration to the managing directors and other officers of the company. The system of wage prevailing in the company, as agreed, so far as the workers were concerned, is a consolidated wage fixed on an hourly basis. Alter referring to the two agreements of 1964 and 1966, the Union averred that the wages had been perged at the cost of living index 600 under the agreement of April 6, 1966 and only a small interim relief had been given to the workers. The cost of living index having risen considerably beyond 600, the workmen are entitled to a further increase in the dearness allowance. The wages paid by the appellant do not compare favourably with other concerns. Though the company has been paying very liberally to its stall members, the same principle is not being applied to the workmen. The financial capacity of the company to bear any additional burden that may be cast by an increase in the rate of dearness allowance is also beyond doubt. The Union in the end prayed for increased dearness allowance being granted at the rate of 45 per cent on cost of living index 610, wages to be worked ' out at 500 and also to make a provision for 5% increase or fall thereafter for every 10 points. The further demand was that this increase in the clearness allowance is to be granted from January 1966.

10. The management contested the claim of the Union on various grounds. The company pleaded that its financial position is such that it cannot bear any additional burden by way of higher rates of dear ness allowance. The wages paid to the workmen compare quite favourably with the wages paid by other comparable concerns in the region. The comparison made by the Union of the appellant with foreign companies like Glaxo, Pfizer and other similar companies is not justified. The demand for grant of full neutralisation is not permissible in law.

11. The Industrial Tribunal considered the financial capacity of the appellant company from two points of view, viz., the capital investment and the profits made by it. So far as the capital is concerned. it has taken the view that the company which started with a capital of about Rs. 50,000/- had a capital of about 7 lakh rupees in 1966. The plea of the company that the shareholders have not received any benefit for the amounts invested by them in the company for a considerable time, was not accepted by the Tribunal as it was satisfied that a scrutiny of the balance sheet filed by the company from 1961 onwards shows to the contrary. Adverting to the profits earned by the company, the Tribunal has noted that during the period 1963-63 the gross profits were Rs. 9,32,304; Rs. 8,94,393; Rs. 12.43.596; and Rs. 7,85,345 respectively and came to the conclusion that though the paid up share capital of the company was only Rs. 7.00:000|- the company's profits were more than 7 lakhs and that in a particular year., viz., 1963, it had actually made a profit of nearly 12 lakhs and odd. The Tribunal then adverted to the total wage bill of the company and ultimately held that the financial position of the company was such that it would be able to bear the additional burden that might be imposed on it by a higher rate of dearness allowance being granted to the workmen. The Tribunal took note of the fact that in April 1969 the price index stood at 755 and in view of the enormous rise in the price index since the agreement of 1966, the Tribunal was of the view that there was justification for increasing the dearness allowance payable to the workmen.

12. The appellant, in order to establish that the wages paid by it to its workmen were reasonable, desired that it should be compared for this purpose with two other concerns, viz., Chemo Pharma Ltd., and Cipla. On the other hand, the Union desired that the appellant . should be compared with companies like Morrison, Roche, Tedding-ton Chemicals, Burrough, Welcome, Glaxo Laboratories, Boots Pure Drug, Abbot Laboratories and others. But the Tribunal has taken the view that the Union excepting filing a set of settlements which taken place in the companies relied upon by it and the manage-filing a settlement regarding the two firms adverted to by it, have not placed any other material or evidence to establish that the companies referred to by them are comparable with the appellant company. Hence it has taken the view that in respect of the comparable concerns, no evidence has been adduced by either the company or the Union. Therefore the Tribunal has not chosen to rely upon the limited material that appears to have been placed before it by the Union and the management. But, nevertheless, the Tribunal has rested its decision for giving an increase in the rate of dearness allowance on the terms of the settlement of 1966 and also in view of the steep rise in the cost of living index.

13. The Tribunal has adverted to the fact that if neutralisation is to be granted as per the demand, the annual additional burden on the company would be about Rs. 6,75,000/- and it is of the view that the demand is rather exorbitant and excessive. But, having due regard to the fact of the rate of increase provided in the agreement of 1966, the Tribunal ultimately granted a variation of 2.5% at every rise or fall of 10 points in the price index above 600. It is the view of the Tribunal that the annual burden at the rate awarded on the company will be about Rs. 1,75,000!-. Pausing here for a minute, the Tribunal has made a slight mistake because this would be the amount if variation is granted at 2%, whereas at the rate awarded by the Tribunal, viz., 2.5%, the annual burden would be, we are informed about Rs. 2.43,000/-.

14. Mr. Gokhale, learned Counsel for the appellant, has raised three contentions before us:

(i) The Tribunal has committed a serious error in recording a finding that the Chemo Pharma Ltd. and Cipla were not comparable with the appellant, without considering the materials placed before it by the appellant.

(ii) The finding of the Tribunal regarding the financial ability .of the appellant to bear the additional burden is not justified by the evidence on record.

(iii) The Tribunal, in any event, has committed an error in law in having granted full neutralisation when increasing the rate of dearness allowance.

15. Mr. A.C. S. Chari, learned Counsel for the respondent, pointed out that the findings recorded by the Tribunal regarding the two 3 firms relied on by the appellant as not being comparable as well as the financial ability of the appellant are fully justified by the materials on record. In fact, the counsel point out that the respondent have produced various sets of agreements entered into by the several companies relied on by them to establish that the wage scales and dearness allowance paid by the appellant were grossly low as com- pared with those firms and the materials placed in that regard have not been properly appreciated by the Tribunal. Counsel further; pointed out that the grant of dearness allowance at the rate awarded by the Tribunal is fully justified in view of the enormous rise in the price index and because of the low wages in this company.

16. Before we proceed to deal with the contentions of Mr. Gokhale, it is necessary to state that the claim for revision of dearness allowance has been properly entertained by the Tribunal. The agreement of April 6, 1960 itself 'states that the cost of living index has gone above 600 and therefore the matter of dearness allowance has to be referred immediately for decision. Over and above this agreement, it is also to be seen that this Court has laid down in Remington Rand of India v. Its Workmen (1) that when a rise in the cost of living index has been established, the claim for a revision of dearness allowance cannot be rejected without examining it on merits.

17. Regarding the first contention of Mr. Gokhale, it is seen that the management pressed before the Tribunal that the wage scale and dearness allowance obtaining in Chemo Pharma Ltd. and Cipla which are comparable units should be taken into account and, if so compared, the wage scales as obtaining in the appellant company would have been considered to be reasonable, not requiring any modification. As stated by this Court in Novex Dry Cleaners v. Its Workmen (2),

Before comparing the establishment in question with other establishments engaged in the same trade in the region, it would be obviously necessary for the industrial tribunal to compare the establishments in respect of heir standing, the extent of the labour force employed by them, the extent of their respective customers and what is more important, a comparative study should be made of the profits and losses incurred by them for some years before the date of the award.

and, as held by this Court in Bengal Chemical and Pharmaceutical Works Ltd. v. Its Workmen (3) the same principles apply in the case of fixation of dearness allowance also. Mr. Gokhale very strongly pressed before us the circumstance that certain statements filed by the appellant containing various particulars regarding Chemo Pharma Ltd. and Cipla were not challenged on behalf of the Union. The Tribunal, counsel pointed out, rejected the Union's plea that the appellant should be compared with the various firms which had entered into settlements with their workmen. The particulars, furnished by the appellant, in the statements if properly looked into provide adequate information to establish that Chemo Pharma Ltd. and Cipla are concerns which could be properly compared with the appellant company. The rejection of these statements, by the Tribunal was not justified. We are not inclined to accept this contention.

18. The Tribunal has referred to the various matters contained in the statements furnished by the appellant regarding Chemo Pharma Ltd. and Cipla. But the Tribunal has taken the view that no particulars regarding the standing, the extent of labour force employed, the extent of their respective customers, the profit and loss and such other relevant information have been furnished by the appellant and therefore it took the view that those companies could not be considered for purposes of comparison with the appellant. For similar reasons the statements filed by the Union regarding the settlements stated to have been entered into by certain concerns with their workmen, were also rejected by the Tribunal. We do not find any error committed by the Tribunal in the reasons given by it for rejecting, the claim of the management in this regard.

19. The appellant has filed an application in this Court-C.M. P.4620 of 1969-praying for permission to file certain additional documents. One of the documents sought to be tendered is additional evidence is stated to certain particulars regarding the years in which the Chemo Pharma Ltd. and Cipla were established as well as the number of workmen employed by each of those firms and their manufacturing activites. We have already referred to the fact that the Tribunal has declined to rely upon the statements filed by the appellants regarding these two concern:; on the ground that they do not contain any information regarding their manufacturing activities, their labour force etc. In view of this we were not inclined to grant the permission asked for by the appellant and, as such, we have already rejected C.M. P. 4620 of 1969 on November 14, 1969.

20. It follows that the first contention of Mr. Gokhale has to be rejected.

21. The second contention of Mr. Gokhale is that the Tribunal has not properly appreciated the material evidence on record when it came to the conclusion that the appellant's financial position was such that it could easily bear the additional burden of the higher rate of dearness allowance. Mr. Gokhale urged that it may be that the company's past profits may have been fairly large, but the company, ho pointed out, was mainly carrying on the business of manufacturing pharmaceuticals on contract for certain other concerns. Those concerns have given notice terminating their agreements with the appellant and that has necessarily resulted in a very rapid and sudden dwindling of the profits. When awarding a higher rate of dearness allowance, as in the case of wages and as held by this Court in Novex Dry Cleaners v. Its Workmen (2) an attempt is generally made in assessing the additional liability imposed on the employer and trying to anticipate whether the employer would be able to meet it for a reasonably long period in future. Whether the appellant will be able to reasonably bear the burden in the years to come has not been properly considered by the Tribunal.

22. Here again, we do not see any mistake or error committed by the Tribunal. The Tribunal has taken note of the fact that the appellant company manufactures pharmaceuticals on contract for various other concerns and that there is a possibility of those concerns taking up manufacture of such articles themselves. But the Tribunal has referred to the fact that the appellant itself is also a manufacturing concern making good profits and that no evidence to the contrary has been placed by the management.

23. Mr. Gokhale referred us to the notice, dated January 19, 1967 given by Warner Hindustan Ltd., Bombay, to the appellant. It is stated in the said notice that Warner Hindustan Ltd. for whom the appellants are manufacturing certain products have established a pharmaceutical plant and that they expect to go into production from May 1967 onwards. The notice further states that the appellants from June 19G7 will cease to manufacture certain types of Warner products and the rest of the products from July-August 1967. No evidence has been brought to our notice by the appellant that the agreement has been actually terminated, nor has any materials been placed before us to show the volume of business transacted by the appellant with Warner Hindustan Ltd., before and after the termination of the agreement. Though the notice is of 1967, the management, so far as we could see, have not adduced any evidence before the Tribunal in this regard.

24. Mr. Gokhale further referred us to a notice issued by Pfizer Ltd., dated November 26, 1968 to the appellant. That notice also states that the Ian manufacturing of Pfizer products by the appellant would stand terminated by the end of March 1968. It is further stated that no more orders will be given to the appellant after March 31, 1968 and that the production in respect of orders already given would be continued until the end of June 1968. The same criticism that we have made regarding the notice issued by Warner Hindustan Ltd., applied to this notice also.

25. Mr. Gokhale then referred us to the agreement dated July 22, 1963 entered into between the appellant and Smith, Kline and French (India) Ltd. One of the conditions of the agreement was that the appellants were to act as agents, consultants and advisers to Smith, Kline and French (India) Ltd. There are several other matters referred to in the agreement. Clause 7 of the agreement gives a right to the manufacturer to terminate the agreement by three months' written notice in the circumstances mentioned therein. According to Mr. Gokhale, the agreement has been terminated and the business profits of the appellant company have diminished in consequence. There was no material placed before the Tribunal that the agreement has been terminated. On the other hand, the appellants, in C.M. P. 4620 of 1969 referred to earlier, requested this Court to receive as additional evidence, a copy of letter dated October 9, 1969 stated to have been received by them from Smith, Kline and French (India) Ltd., regarding the termination of the agreement and certain other matters. We have already rejected that petition, and it follows that the appellant is not entitled to place any reliance on that letter.

26. Therefore, the position before the Tribunal was that the appellant did not adduce any evidence to show the volume of business done by it in respect of each of the companies referred to above, as to whether the agreements had been terminated and, if so, the consequent diminution in the profits of the company. Under those circumstances, the Tribunal, in our view, was perfectly justified in holding after having due regard to the profits earned by the company, that its financial condition was quite good. In fact the Tribunal has stated that the working results for the years 1967-68 was filed by the appellant under a confidential cover and those statements do not snow any decline in the gross profits earned by the company for that year.

27. For these reasons, the second contention also has to be rejected.

28. Coming to the last contention of Mr. Gokhale that refers to the actual rate of dearness allowance awarded by the Tribunal. He pointed out that the Tribunal has granted full neutralisation which is not permissible in law. In this connection he referred us to the decision of this Court in Kaimeni Metals and Alloys Ltd. v. Their Workmen (4) and Bengal Chemical and Pharmaceutical Works Ltd. v. Its Workmen (3). In fact, in the latter decision, this Court has referred to the earlier decisions on the point and ultimately summarised the position regarding the principles governing the fixation of wages and dearness allowance.

29. In Kaimeni Metals case (4) it has been stated that as it is not advisable to have a one-hundred per cent neutralisation lest it lead to inflation, dearness allowance is often a. little less than one-hundred per cent neutralisation. In Bengal Chemicals case (3), after a review of the previous decisions, this Court held that full neutralisation is not normally given except to the very lowest class of employees. Mr. Gokhale pointed cut that though the Tribunal had proceeded on the basis that full neutralisation should not be granted, nevertheless, the rate at which neutralisation has been granted by the Tribunal contravenes the principles laid down by this Court. Mr. Chari, on the other hand, no doubt pointed out that if properly worked out the result would not be, as assumed by the appellant. In any event, he pointed out that no prohibition has been laid down by this Court against the grant of full neutralisation under any circumstance. Without going into this aspect, in our opinion, the matter can be disposed of on a different consideration.

30. The Tribunal, we have already pointed out, has rejected the demand of the Union for grant of dearness allowance at the rate of 45% on cost of living index 610, wages being worked out at 500 and a 5% rise or fall for every 10 points. The Tribunal has taken the view that it is more scientific to provide for a sliding scale. We are in agreement with the Tribunal in this regard and it also accords with the principles laid down by this Court in the Bengal Chemicals case (3).

32. Therefore, in view of these circumstances which are available in the agreement of April 6, 1966, we have to effect a slight modification in the variation fixed by the Industrial Tribunal. We are also of the view the grant at the rate of 2.5% rise in dearness allowance, as awarded by the Industrial Tribunal, will involve the company in an annual burden of Rs. 2,43,000!- and that imposing such a large burden at once might create hardship on the company.

33. In view of these circumstances, we would allow a variation of only 2% on every rise or fall of 10 points in the consumer price index above 600.

34. In the result, the appeal is allowed to the limited extent that the variation of 2.5% fixed in the award is modified to a variation of 2% and in all other respects the Award stands and the appeal dismissed. As the appellants have substantially failed in their contentions, they are directed to pay costs of the respondents in this appeal.